Building up a no-claims discount over a number of years is the best way to reduce the cost of your car insurance premium, and while each insurer has its own scale, many offer a no-claims discount of up to 70 per cent for drivers who haven't claimed for over five years. Typically, you will be offered the chance to "protect" your no-claims discount at this stage, and you may be tempted to sign up, to ensure that if you have an accident, this bonus will remain intact. But given that motorists looking to protect a five-year no-claims discount could face a premium of up to £90 on top of the cost of annual car insurance, is this a benefit worth forking out for?

Beware of the "step back" scale

If you do decide to leave your five-year no-claims discount "unprotected", you do need to be aware of the "step back" scale if you need to make a claim, as with most insurers, a certain percentage of the discount is lost for each claim. This means that if, for example, your insurer offered a maximum no-claims discount of 65 per cent, the first claim would reduce the no claims discount to 50 per cent, and the number of no claims years to three, according to financial analyst Defaqto. The second would then reduce the discount to 30 per cent, and the years to one, and the third would result in no discount being given - and the number of years to 0. "The motorist could therefore lose a substantial discount unless they have paid to protect their no claims discount," says Michael Powell from Defaqto. "So when a policyholder has reached the maximum discount available, I feel it is advisable to protect it." This is a view shared by Niki Bolton from insurer Esure who said: "Adding a small premium - in the tens of pounds - makes sense if it could stop your no-claims discount being reduced in the event of having to make a claim," she says.

Charges can vary considerably

However, while the potential premium hikes for those who don't protect their no claims discount may make paying for protection seem very appealing, the charges levied on drivers can vary considerably, and while it usually costs between 5 and 10 per cent of the total premium, it can range from as little as a few pounds up to as much as £90 a year. This means that the cost of the protection could cancel out the saving on your policy - especially if you don't make a claim for a number of years. You also need to consider the level of protection provided, as insurers have varying limits, and some will only provide cover for two claims in a five-year period, while others allow two claims in three years or one a year - so it's vital to read the small print.

Your premium could still increase

Further, you need to bear in mind that even if you have paid to protect your no-claims bonus, that protection doesn't stop an insurer from reassessing a driver's risk in the event of an accident - regardless of how many years no claims the motorist's record shows. "Many insurers will load premiums if a claim has been made on the policy," says Simon Coughlin from M&S; Car Insurance.

Do your homework

At the end of the day, while a no-claims bonus can be a valuable asset when it comes to driving down car insurance costs, you need to do your research - and your sums - before you pay to protect it.